A 20yr old futures trader needs help with trade management

Discussion in 'Risk Management' started by James, Oct 30, 2010.

  1. James


    Say I have a 5,000 dollar account balance. I have a system that literally gives me a 90% chance of getting .5 pts (but only .5pts). I am seeking to get the bigger moves but the .5pts is to give me cushion. I use other highs for stops so they are roughly 1 point away. Does it make sense to trade 5 contracts, sell 3 of them when I get .5pts (for the cushion on the other 2 contracts) and keep the other 2 in for larger point moves? I have around a 10% chance of getting stopped out with a 1-1.5pt loss on ALL 5 contracts, a 90% chance of at least getting .5pts per contract.

    I was thinking of just scalping, but then I would miss larger moves and I would be risking 1-1.5 pts for ever .5 point. That doesn't make a whole lot of sense because god forbid it is only an 80% success rate, that would wipe out like 2-3pts if I did it ten times and I would make a net of like 2 points in the day with 10 trades. It just seems bleh. That is why I am trying to keep contracts in longer (like 2 contracts) but still scalp to cushion the larger potential for loss with keeping contracts in longer.

    Futures are much more complicated and tricky than stocks.

    And let me say, the 90% statistic is from 6 months of closely watching the markets with the tools I am utilizing. So I didn't just grab it out of the air.
  2. James


    Any advice anyone? I have been having a real problem orchestrating this. This is the best I could come up with. My 'system' and what not is great, but we all know that doesn't mean a whole lot if you screw up getting in and out of the contracts. I wouldn't have this problem if I was just day trading SPY because you don't have to be so precise.

    I have just been scalping and making around 100-200 dollars a day which is great especially for a guy in college. But I would like to do this once I get out of college for a while (not forever) and I get frustrated when I sell short and get out with .5pts and then the markets go down an extra 5 points so I have spent a lot of time now structuring how to get those moves. Anyway, anyone's input would be greatly appreciated.....
  3. Ok. Let's start with the last sentence of your first Paragraph of your first post:

    Expected return = ( .90 * .5) - ( .10 * 1.5) = .45 - .15 = .30/trade

    On one ES contract, if I'm not mistaken (I'm more of a stock and SPY guy) that is an avg of 15 bucks per trade before commissions? It just seems like commissions and slippage will kill you.

    Second, the question you are asking, whether or not to scale out, scalp, or to hang on for larger profits with all of it, is the question all of us have asked ourselves. Scalping seems to be the way to consistency at first, but only a few can really do it. But if you are managing to get the numbers you are saying, with a 5k account, then God bless you. Keep doing it.

    I, personally, have always done better scaling out. Others will differ. It's just what has worked for me.

  4. James


    Well making 100-200 a day on a 5,000 dollar account isn't extraordinary considering 1 point moves=10% of what you put in (the margin for the contract). So even if you put in only 1 contract and made 1 point you make 50 dollars (minus commissions of course).

    The commission is around 5 dollars round trip per contract. The slippage isn't usually a big concern for me considering I am trading so few contracts (like 3).

    What is scaling out exactly? I guess nobody can really answer my question for me. Unfortunately there is no 'guru' that has all the answers. The problem with futures is the leverage, the best part of futures is the leverage. If I had more money I would be a VERY successful SPY trader. Since I don't, I have to figure out how to be a lot more precise due to the leverage.

    If I lose 1 point per contract on 5 contracts in a 5,000 dollar account that equals 250 dollars. Kind of stressful for just a 1 point move. So the worst that will happen is I will scalp 3 contracts like I have been doing and leave 1 contract in for larger moves even though 1 contract doesn't seem like a whole lot...
  5. I answered your question, and since you don't know what the hell scaling out is, you say no one can answer you question. Jesus.

    Scaling out is what you implied in your first paragraph where you would sell the first three, and hang onto the rest for more.

    BTW, what are you trading 3 contracts of with 5k?
  6. NoDoji


  7. If you are trading 3 contracts in a $5,000 account your risk of ruin is simply to high. Two is a stretch but three is just nuts.
  8. Thanks Donna. I was going to start there, but haven't done algebra for awhile, so I was inclined to that first.
  9. If you have a positive edge with the system at 1.5 to .5 R:R then you should probably keep doing just that and build your account slowly until you can add 1 contract without giving back all your profits should you go through twice the amount of drawdowns experienced up to that point (or in the entire backtest). Talking about scaling out is really talking about a separate system for those contracts you would hold, so if you figure out another system with positive expectancy then do that with the scales.

    Also, I'd say that six months is a pretty short a time for a backtest, but what you have would probabky work ok for at least a little while longer. Just keep on your toes for when it starts to break down.
  10. Eddiefl



    i will save you years of tormet and tons of $$$.. read very carefully. I know the chances are you wont go with what i say, but i can only the horse to water.

    Dont ever open up a daytrading chart, forget you ever heard that term. NO charts under 15minute, preferably 30minute or above.

    Sing treade with 1 contract, after 3-4 months of doing well, add another contract. There, bam, done. Class is over you gains should be like this.


    You gains and equity curve should be full of this , large gain, small loss, small gain, large gain, and so forth and so forth.

    YOu need, let me repeat , YOU NEED, not want, YOU absolutely need out liers, large outlier gains.

    Look at pros and successful traders, , in one month, it will be 2 or 3 outliers that make thier month, the rest of the trades try to cancel themselves out,

    good luck,

    #10     Oct 30, 2010